Cx Reinsurance Company Limited v. Heggie, Jr. et al
MEMORANDUM. Signed by Judge Ellen L. Hollander on 10/14/2016. (jnls, Deputy Clerk) Modified on 10/14/2016 (jnls, Deputy Clerk).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
CX REINSURANCE COMPANY
Civil Action No. ELH-15-1674
DANIEL MATHEW HEGGIE, JR., et al.
Plaintiff CX Reinsurance Company Limited (“CX Re”), formerly known as CNA
Reinsurance Company Limited, filed a declaratory judgment action against a host of defendants,
including Arbor Inc. (“Arbor”) and Daniel Heggie, Jr. ECF 1.1 CX Re seeks a determination
that it “does not have an obligation to defend or indemnify” Arbor in a lead paint action filed in
the Circuit Court for Baltimore City by Heggie, as plaintiff, against Arbor and the other parties
named by CX Re as defendants in this case. Id.
The lead paint case filed by Heggie in 2013, Case No. 24-C-13-6788 (the “Tort Suit”),
alleges, inter alia, that Heggie, who was born in 1993, was injured by his exposure to lead-based
paint at his mother’s residence, which was owned by Arbor. ECF 1-2 at 94-100. Arbor is a
named insured in two consecutive general liability insurance policies (ECF 1-3; ECF 1-4)
(collectively, the “Policies”) issued by CX Re to B&R Management, Inc. and others. See ECF 13 at 4; ECF 1-4 at 5.
CX Re explains that it sued Heggie, the plaintiff in the Tort Suit, and all of the defendants
he named in the Tort Suit, “because they may have or claim an interest in the declarations sought
This suit is founded on 28 U.S.C. § 2201. Cx Re also relies on diversity jurisdiction.
28 U.S.C. § 1332. ECF 1 ¶ 6.
by this action.” ECF 1 ¶ 5. However, Heggie and Arbor are the only remaining defendants in
the suit, as the Court has previously granted CX Re’s requests to dismiss all of the other
defendants, pursuant to Fed. R. Civ. P. 41(a). ECF 35; ECF 36; ECF 46.2
Now pending before the Court is “Plaintiff’s Motion for Summary Judgment” (ECF 43),
supported by a memorandum of law (ECF 43-1) (collectively, the “Motion”), and several
exhibits. ECF 43-2 through ECF 43-6. In the Motion, CX Re asserts that it is not required to
defend or indemnify Arbor in the Tort Suit because an exclusion to the Policies precludes
coverage and Arbor has failed to prove that an exception to the exclusion applies. See ECF 1
¶¶ 30-37. No defendant filed an opposition to the Motion.
A hearing is unnecessary to resolve the Motion. See Local Rule 105.6. For the reasons
that follow, I shall grant CX Re’s Motion.
Factual and Procedural Background
CX Re filed its “Complaint for Declaratory Relief” in this Court on June 9, 2015. ECF
1. In particular, CX Re requests the Court, id. at ¶ 1, to:
declare that, due to the application of an exclusion of coverage contained in the
policies, CX Re does not have an obligation to defend or indemnify Arbor in an
action, brought by Mr. Heggie against all other parties to this case, in which Mr.
Heggie claims he sustained injuries due to exposure to paint or dust containing
lead or lead pigment.
Under Maryland law, in declaratory judgment actions regarding an insurer's duty to
defend, the principally relevant facts are the provisions of the insurance policy and the
On December 7, 2015, CX Re requested dismissal of those defendants who had not yet
been served. ECF 35. CX Re explained that these defendants were either no longer parties to
the Tort Suit, were not meaningfully participating in the Tort Suit, or “had no potential interest in
the declarations sought by this litigation.” ECF 31 at 1-2. I granted the motion to dismiss those
defendants on December 7, 2015. ECF 36. On October 14, 2016, CX Re requested dismissal of
Jacob Dackman & Sons, LLC; Bernard Dackman and/or the Estate of Bernard Dackman; The
Dackman Company; Joel Dackman and/or the Estate of Joel Dackman; and Sandra Dackman
and/or the Estate of Sandra Dackman. ECF 45. I granted that motion. ECF 46.
allegations of the underlying lawsuit, for which the insured seeks coverage and a defense.3
Ordinarily, other facts are relevant, if at all, only for purposes of clarifying the meaning of the
policy or establishing a basis for coverage that is not apparent from the factual allegations in the
underlying complaint. See, e.g., Clendenin Bros., Inc. v. U.S. Fire Ins. Co., 390 Md. 449, 458–
60, 889 A.2d 387, 393–94 (2006) (stating that, in interpreting an insurance policy, Maryland law
permits consideration of evidence showing the parties' intent to use policy terms in a special or
technical sense; the circumstances of the parties at the time the policy was issued; and extrinsic
evidence that may resolve ambiguities, if any, in the terms of the policy); Aetna Cas. & Sur. Co.
v. Cochran, 337 Md. 98, 105–11, 651 A.2d 859, 863–66 (1995) (stating that an insured may
present evidence beyond the underlying complaint to establish a potentiality of coverage).
CX Re relies exclusively upon Maryland substantive law. See ECF 43-1 at 2-3. I agree
that Maryland substantive law governs. Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270,
275 (4th Cir. 2007) (“Because we sit in diversity in this case, we must apply the substantive law
of the forum state including its choice of law rules.”); see Erie R.R. Co. v. Tompkins, 304 U.S.
64, 78 (1938) (“Except in matters governed by the Federal Constitution or by acts of Congress,
the law to be applied in any case is the law of the state.”).
Maryland is the forum state. When insurance policies, such as the Policies at issue,
contain no choice of law provisions, Maryland applies the doctrine of lex loci contractus, “which
requires that the construction and validity of a contract be determined by the law of the place of
making of the contract.” Am. Motorists Ins. Co. v. ARTRA Grp., Inc., 338 Md. 560, 570, 659
A.2d 1295, 1300 (1995); see also, U.S. Life Ins. Co. v. Wilson, 198 Md. App. 452, 462–63, 18
A.3d 110, 116 (2011). Moreover, the “‘locus contractu of an insurance policy is the state in
which the policy is delivered and the premiums are paid.’” Id. at 463, 18 A.3d at 116 (citation
omitted); see also Volt Info. Sci., Inc. v. Bd. of Trustees of Leland Stanford Univ., 489 U.S. 468,
474 (1989) (“interpretation of private contracts is ordinarily a question of state law”); accord
James v. Circuit City Stores, Inc., 370 F.3d 417, 421–22 (4th Cir. 2004); see also French v.
Assurance Co. of Am., 448 F.3d 693, 700 (4th Cir. 2006) (stating, in diversity declaratory action
regarding coverage under insurance policy issued to Maryland policyholder, “we apply . . .
Maryland's substantive law regarding the interpretation of an insurance policy”).
In this case, the Policies were delivered in Maryland. See ECF 1-3 at 2; ECF 1-4 at 2.
Therefore, Maryland law applies.
Here, CX Re has moved for summary judgment as to all remaining defendants. In
considering a motion for summary judgment, a court must view the facts in the light most
favorable to the non-moving party. See, e.g., Yates v. Terry, 817 F.3d 877, 881 (4th Cir. 2016).
Because the defendants did not respond to or answer the Complaint, the factual allegations in the
Complaint are deemed to be admitted. Fed.R.Civ.P. 8(b)(6) provides: “An allegation – other
than one relating to the amount of damages – is admitted if a responsive pleading is required and
the allegation is not denied. If a responsive pleading is not required, an allegation is considered
denied or avoided.”
A. The Policies
CX Re’s request for declaratory judgment arises out of two general liability policies for
which Arbor was a named insured. See ECF 1 ¶ 3; ECF 1-3 at 4; ECF 1-4 at 5; ECF 44-1
through ECF 44-3.4 The first policy, CNAGL1106-97, “covered the period from August 1, 1997
to August 1, 1998.” ECF 1 ¶ 16; see ECF 1-3 at 2. The second policy, CNAGL1240-98,
“covered the period from August 1, 1998 to August 1, 1999.” ECF 1 ¶ 16; see ECF 1-4 at 2.
The Policies provide that CX Re will “pay those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury’ . . . to which this insurance applies.” ECF
44-1 at 1; ECF 44-2 at 1. In the Policies, “bodily injury” is defined as “bodily injury, sickness,
or disease sustained by a person, including death resulting from any of these at any time.” ECF
44-1 at 10; ECF 44-2 at 9. However, the Policies only apply to bodily injuries if, inter alia, the
“‘bodily injury’ . . . occurs during the policy period.” ECF 44-1 at 1; ECF 44-2 at 1.
The copies of the Policies, ECF 43-4 and ECF 43-5, are illegible. At the Court’s
request, on September 15, 2016 (ECF 44), CX Re submitted clarifications, i.e., policy forms that
“bear the same form numbers as the pertinent, material portions of Exhibit C (43-4) and Exhibit
D (ECF 43-5) . . . .” See ECF 44-1 through ECF 44-3. Counsel has represented that the forms
and the Policies “are believed to contain identical language.” ECF 44.
The Policies include a specific endorsement titled “COVERAGE LIMITATION – LEAD
CONTAMINATION” (the “Exclusion”). It provides, ECF 44-3 at 1: “This insurance does not
apply to: . . . (3) ‘[b]odily injury’ . . . arising out of the ingestion, inhalation, absorption of, or
exposure to, lead, lead-paint or other lead-based products of any kind, form or nature
However, the Policies also include an exception to the
Exclusion (the “Exception”). Id. It provides, in part:
Section II – COVERAGE LIMITATION
(a.) Exclusion (3) above does not apply to and we will pay those sums that the
Insured becomes legally obligated to pay as damages because of "bodily
injury" . . . arising out of the Ingestion, Inhalation, absorption of, or exposure
to lead, lead-paint or other lead-based products of any kind, form or nature
whatsoever to which the insurance provided by this endorsement applies. We
will have the right and duty to defend any "suit" seeking those damages. . . .
The Exception to the Exclusion also contains a qualification. Id. at 2. It provides,
in part, id.:
(b.) This insurance applies to "bodily injury" . . . only if: *** (4) For “bodily
injury” a lead level in blood, bone or body tissue in excess of the “safe level”
is first diagnosed by a State licensed physician or other State licensed health
care provider during this policy period[.]
The “safe level” is defined as “‘10 micrograms of lead per deciliter of blood as prescribed
by the Centers For [sic] Disease Control.’” ECF 43-1 at 6 (internal citation omitted); see ECF
44-3 at 3.
B. The Tort Suit
On November 12, 2013, Heggie filed the Tort Suit in the Circuit Court for Baltimore City
against more than one dozen defendants. See ECF 1-2. He alleged: “Defendant, Arbor Inc.,
owned and/or controlled and/or managed . . . 2308 E. North Avenue . . .” where the “mother of
the Plaintiff, Mary Billinger, was a tenant . . . .” Id. at 94–95. Heggie also stated that he “lived
in the dwelling or frequented the dwelling as an invitee of the tenant during 1999-2001.” Id. at
95. Further, Heggie averred, id.:
Both before and after the time the Plaintiff moved into the dwelling, [Arbor] had
either caused or allowed the continued existence of paint containing lead pigment
on its interior and exterior walls, doors, floors, ceilings and woodwork and
knowingly allowed said paint to chip and flake thereby rendering the dwelling
dangerous and unfit for human habitation, especially for children of tender years.
In addition, Heggie asserted, id.: “During the time the Plaintiff resided in the dwelling,
the Plaintiff ingested and consumed paint and dust containing lead and lead pigment thereby
causing the Plaintiff to suffer the injuries, illness and infirmities herein alleged.” According to
Heggie, his lead exposure “during critical stages of development” caused “severe and permanent
brain damage.” Id.
Arbor’s counsel “tendered the [Tort Suit] to CX Re” on April 23, 2014. ECF 1 ¶ 15. On
July 3, 2014, “CX Re undertook to participate in Arbor’s defense of the claims stated by Heggie
on a time-on-risk basis, subject to a full reservation of rights.” Id. ¶ 25. But, CX Re “disclaimed
any obligation under the Policy to indemnify Arbor in connection with Heggie’s claims.” Id. ¶
26. Then, “[o]n May 19, 2015, CX Re disclaimed any duty to defend Arbor on the ground that
the Policy generally excludes coverage for claims such as the [Tort Suit] that allege bodily injury
caused by exposure to lead.” Id. ¶ 27.
Standard of Review
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is
appropriate only “if the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” See Celotex Corp. v. Catrett, 477 U.S.
317, 322–24 (1986). The non-moving party must demonstrate that there are disputes of material
fact so as to preclude the award of summary judgment as a matter of law. Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585–86 (1986).
The Supreme Court has clarified that not every factual dispute will defeat the motion.
“By its very terms, this standard provides that the mere existence of some alleged factual dispute
between the parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986) (emphasis in original). A fact is “material” if
it “might affect the outcome of the suit under the governing law.” Id. at 248. There is a genuine
issue as to material fact “if the evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” Id.; see Dulaney v. Packaging Corp. of Am., 673 F.3d 323, 330 (4th Cir.
The judge's “function” in reviewing a motion for summary judgment is not “to weigh the
evidence and determine the truth of the matter but to determine whether there is a genuine issue
for trial.” Anderson, 477 U.S. at 249. To defeat summary judgment, conflicting evidence must
give rise to a genuine dispute of material fact. Id. at 247–48. If “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party,” then a dispute of material fact
precludes summary judgment. Id. at 248; see Vannoy v. Fed. Reserve Bank of Richmond, 827
F.3d 296, 300 (4th Cir. 2016). Conversely, summary judgment is appropriate if the evidence “is
so one-sided that one party must prevail as a matter of law.” Anderson, 477 U.S. at 252. And,
“the mere existence of a scintilla of evidence in support of the [movant's] position will be
insufficient; there must be evidence on which the jury could reasonably find for the [movant].”
Furthermore, district courts must “thoroughly analyze” motions for summary judgment,
even where unopposed. Maryland v. Universal Elections, Inc., 729 F.3d 370, 380 (4th Cir.
2013). “In considering a motion for summary judgment, the district court “must review the
motion, even if unopposed, and determine from what it has before it whether the moving party is
entitled to summary judgment as a matter of law.” Robinson v. Wix Filtration Corp. LLC, 599
F.3d 403, 409 n. 8 (4th Cir. 2010) (emphasis in original) (internal quotations omitted).
“Although the failure of a party to respond to a summary judgment motion may leave
uncontroverted those facts established by the motion, the moving party must still show that the
uncontroverted facts entitle the party to ‘a judgment as a matter of law.’” Custer v. Pan Am. Life
Ins. Co., 12 F.3d 410, 416 (4th Cir. 1993).
In resolving a summary judgment motion, a court must view all of the facts, including
reasonable inferences to be drawn from them, in the light most favorable to the non-moving
party. See Matsushita Elec. Indus. Co., Ltd., 475 U.S. at 587; see also Lawson v. Union Cty.
Clerk of Court, 828 F.3d 239, 247 (4th Cir. 2016); Yates, 817 F.3d at 881 (4th Cir. 2016).
Affidavits are to be made on personal knowledge, contain such facts as would be admissible in
evidence, and show affirmatively the competence of the affiant to testify to the matters stated in
the affidavit. Fed. R. Civ. P. 56(c)(4).
According to CX Re, it has no duty to defend or indemnify Arbor. It states, ECF 1 ¶ 30:
“Under the exclusion contained in the COVERAGE LIMITATION–LEAD CONTAMINATION
endorsement . . . the Policy ‘does not apply’ because [Heggie’s] bodily injuries allegedly arose
out of the ingestion and consumption of ‘paint and dust containing lead and lead pigment.’”
Furthermore, CX Re asserts, id. ¶ 32:
The potentially applicable exception requires that Arbor demonstrate that Heggie
was first diagnosed with a lead level in excess of the “safe level” of 10
micrograms of lead per deciliter during one of the policy periods of August 1,
1997 to August 1, 1998 (CNAGL1106-97) or August 1, 1998 to August 1, 1999
Noting that “the insured – here, Arbor – bears the burden of proving that an exception to
the exclusion applies,” CX Re argues that Arbor “has not met its burden to show that any
exception to the exclusion . . . applies . . . .” Id. ¶¶ 31, 33.
In the federal courts, declaratory judgments are authorized by the Declaratory Judgment
Act, 28 U.S.C. § 2201(a), which provides (with exceptions not relevant here) that, in “a case of
actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other legal relations of any interested party
seeking such declaration . . . .” Because the parties' rights and obligations in this case arise under
the Policies, resolution of the Motion turns on the text of the Policies, which must be interpreted
in accordance with Maryland law.
Maryland law is well settled that “the interpretation of an insurance policy is governed by
the same principles generally applicable to the construction of other contracts.” Mitchell v.
AARP, 140 Md. App. 102, 116, 779 A.2d 1061, 1069 (2001); see Moscarillo v. Prof'l Risk Mgmt.
Servs., Inc., 398 Md. 529, 540, 921 A.2d 245, 251 (2007); State Farm Mut. Ins. Co. v. DeHaan,
393 Md. 163, 193, 900 A.2d 208, 225-26 (2006); Cole v. State Farm Mut. Ins. Co., 359 Md. 298,
305, 753 A.2d 533, 537 (2000). Accordingly, “‘ordinary principles of contract interpretation
apply.’” Megonnell v. United Servs. Automobile Ass’n, 368 Md. 633, 655, 796 A.2d 758, 772
(2002) (citation omitted); see Dutta v. State Farm Ins. Co., 363 Md. 540, 556, 769 A.2d 948, 957
In “‘deciding the issue of coverage under an insurance policy, the primary principle of
construction is to apply the terms of the insurance contract itself.’” Universal Underwriters Ins.
Co. v. Lowe, 135 Md. App. 122, 137, 761 A.2d 997, 1005 (2000) (quoting Bausch & Lomb, Inc.
v. Utica Mut. Ins. Co., 330 Md. 758, 779, 625 A.2d 1021 (1993)). However, the court bears
responsibility for ascertaining the scope and limitations of an insurance policy. See Fister v.
Allstate Life Ins. Co., 366 Md. 201, 210, 783 A.2d 194, 199 (2001); Lloyd E. Mitchell, Inc. v.
Maryland Casualty Co., Inc., 324 Md. 44, 56, 595 A.2d 469, 475 (1991).
The Maryland Court of Appeals has explained that judicial “interpretation of insurance
contracts to determine the scope and limitations of the insurance coverage, like any other
contract, begins with the language employed by the parties.” MAMSI Life & Health Ins. Co. v.
Callaway, 375 Md. 261, 279, 825 A.2d 995, 1005 (2003). Generally, Maryland courts “analyze
the plain language of [an insurance] contract according to the words and phrases in their ordinary
and accepted meanings as defined by what a reasonably prudent lay person would understand
them to mean.” Universal Underwriters Ins. Co., 135 Md. App. at 137, 761 A.2d at 1005; see
Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s London, 788 F.3d 375, 379
(4th Cir. 2015) (quoting Kendall v. Nationwide Ins. Co., 348 Md. 157, 166, 702 A.2d 767, 771
(1997)); Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 14-15, 852 A.2d 98, 106 (2004); Litz v. State
Farm Fire and Casualty Co., 346 Md. 217, 224, 695 A.2d 566, 569 (1997).
“If the policy’s language is clear and unambiguous, the Court will assume the parties
meant what they said.” Capital City, 788 F.3d at 379 (quoting Perini/Tompkins Joint Venture v.
Ace Am. Ins. Co., 738 F.3d 95, 101 (4th Cir. 2013)). “‘Unless there is an indication that the
parties intended to use words in the policy in a technical sense, they must be accorded their
customary, ordinary, and accepted meaning.’” Maryland Cas. Co. v. Blackstone Intern. Ltd., 442
Md. 685, 695, 114 A.3d 676, 681 (2015) (quoting Lloyd E. Mitchell, Inc., 324 Md. at 56, 595
A.2d at 475). However, if there is evidence that the parties intended to ascribe a special or
technical meaning to certain words used in an insurance contract, those words are construed in
accordance with that understanding. Valliere v. Allstate Insurance Co., 324 Md. 139, 142, 596
A.2d 636, 638 (1991) (“When a policy defines a term in a manner which differs from the
ordinary understanding of that term, the policy definition controls.”); see also Walk, 382 Md. at
14-15, 852 A.2d at 106; Dutta, 363 Md. at 556, 769 A.2d at 957.
Moreover, the insurance policy, including endorsements, “must be construed as a whole
and ‘the character of the contract, its purpose, and the facts and circumstances of the parties at
the time of execution’ must be examined.” United Services Auto. Ass’n v. Riley, 393 Md. 55, 79,
899 A.2d 819, 833 (2006) (quoting Chantel Assocs. v. Mt. Vernon Fire Ins. Co., 338 Md. 131,
142, 656 A.2d 779, 784 (1995)); accord Clendenin Bros., 390 Md. at 459, 889 A.2d at 392; see
Prince George's Cnty. v. Local Gov’t Ins. Trust, 388 Md. 162, 173, 879 A.2d 81, 88 (2005) (“In
general, the main insurance policy and an endorsement constitute a single insurance contract, and
an effort should be made to construe them harmoniously.”); Pacific Indem. Co. v. Interstate Fire
& Cas. Co., 302 Md. 383, 388, 488 A.2d 486, 488 (1985); see also Capital City, 788 F.3d at 379.
If the court deems the provisions of an insurance policy unambiguous, the meaning of the
terms is determined by the court as a matter of law. Clendenin Bros. Inc., 390 Md. at 459, 889
A.2d at 393; see Pa. Nat. Mut. Cas. Ins. Co. v. Roberts, 668 F.3d 106, 118 (4th Cir. 2012)
(applying Maryland law). In that circumstance, “‘a court has no alternative but to enforce those
terms.’” Megonnell, 368 Md. at 655, 796 A.2d at 772 (quoting Dutta, 363 Md. at 557, 556 A.2d
at 1138). But, if a contractual term is ambiguous, the court may consult “extrinsic sources” to
ascertain the meaning. Cole, 359 Md. at 305, 753 A.2d at 537. A policy term is considered
“ambiguous if, to a reasonably prudent person, the term is susceptible to more than one
meaning.” Id. at 306, 753 A.2d at 537.
“‘[U]nlike the majority of other states, Maryland does not follow the rule that insurance
policies are to be most strongly construed against the insurer.’” Capital City, 788 F.3d at 379
(quoting Empire Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 117 Md. App. 72, 97, 699 A.2d
482, 494 (1997)); see Megonnell, 368 Md. at 655, 796 A.2d at 771; Bushey v. Nothern Assurance
Co. of America, 362 Md. 626, 632, 766 A.2d 598, 601 (2001); Collier v. MD-Individual Practice
Ass’n, 327 Md. 1, 5, 607 A.2d 537, 539 (1992). But, “if ambiguity is determined to remain after
consideration of extrinsic evidence, ‘it will ordinarily be resolved against the party who drafted
the contract,’ where no material evidentiary factual dispute exists.” Clendenin Bros., 390 Md. at
459-60, 889 A.2d at 394; see Callaway, 375 Md. at 280, 825 A.2d 995, 1005-06 (“[W]hen a term
in an insurance policy is found to be ambiguous, the court will construe that term against the
drafter of the contract which is usually the insurer.”). In other words, where ambiguous language
remains, the court “construe[s] that language ‘liberally in favor of the insured and against the
insurer as drafter of the instrument.’” Connors v. Gov't Employees Ins. Co., 442 Md. 466, 481–
83, 113 A.3d 595, 603–05 (2015) (emphasis in original) (quoting Megonnell, 368 Md. at 655,
796 A.2d at 772).
Maryland law recognizes “an insurance company’s duty to defend its insured for all
claims which are potentially covered under an insurance policy.” Maryland Cas. Co., 442 Md. at
695, 114 A.3d at 682; see Walk, 382 Md. at 15, 852 A.2d at 106. “‘Even if a tort plaintiff does
not allege facts which clearly bring the claim within or without the policy coverage, the insurer
still must defend if there is a potentiality that the claim could be covered by the policy.’”
Id. (emphasis in original) (quoting Brohawn v. Transamerica Insurance Co., 276 Md. 396, 407–
08, 347 A.2d 842, 850 (1975)). Indeed, “[i]f there is any doubt as to whether there is a duty to
defend, it is resolved in favor of the insured.” Walk, 382 Md. at 16, 852 A.2d at 106-07.
Therefore, the insurer is obligated to defend an insured if “the underlying tort suit . . . allege[s]
action that is potentially covered by the policy, no matter how attenuated, frivolous, or illogical
that allegation may be.” Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 643, 679 A.2d 540, 544
(1996) (emphasis in original); see Aetna Casualty & Surety Co. v. Cochran, 337 Md. 97, 102-03,
651 A.2d 859, 861 (1995).
Determining whether an insurer has a duty to defend is a two-step process. In Capital
City, the Fourth Circuit reiterated two categories of questions to resolve the issue, and said, id. at
“(1) what is the coverage and what are the defenses under the terms and
requirements of the insurance policy? (2) do the allegations in the tort action
potentially bring the tort claim within the policy's coverage? The first question
focuses upon the language and requirements of the policy, and the second
question focuses on the allegations of the tort suit. At times these two questions
involve separate and distinct matters, and at other times they are intertwined,
perhaps involving an identical issue.”
(quoting St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193, 438 A.2d 282, 285
(1981)); see also Maryland Cas. Co., 442 Md. at 696, 114 A.3d at 682.
Therefore, in determining whether an insurer is obligated to defend a tort action, courts
applying Maryland law first determine the coverage and defenses under the terms and
requirements of the insurance contract, and in accordance with the principles of contract
construction, as outlined above. Capital City, 788 F.3d at 379. As noted, in conducting this
analysis, courts apply “ordinary contract principles to insurance contracts.” Id.; see Maryland
Cas. Co., 442 Md. at 695, 114 A.3d at 681. Thus, the determination of coverage turns on “‘the
relevant policy provisions.’” Capital City, 788 F.3d at 379 (quoting Perini/Tompkins, 738 F.3d
at 101); see Local Gov't Ins. Trust, 388 Md. at 173, 879 A.2d at 88.
CX Re contends that it is not required to defend Arbor because the Policies are not
applicable to the Tort Suit. It asserts, ECF 43-1 at 11: “The Policies exclude coverage for bodily
injury caused by exposure to lead, except where an elevated lead level is ‘first diagnosed’ during
the policy period. Because Arbor has not and cannot show that exception applies, the Policies do
not cover the alleged bodily injury.”
Plaintiff correctly argues that “[t]he general rule under Maryland law is the insured has
the initial burden to show that the claim is covered under the policy’s insuring agreement.” ECF
43-1 at 8. But, even “if the claim is excluded, it may be covered under an exception to the
exclusion.” However, “the burden shifts back to the insured to prove the applicability of that
exception.” Id.; see, e.g., CX Reinsurance Co. Ltd. v. Levitas, JKB-15-2174, 2016 WL 4888881,
at *6 (D. Md. Sept. 15, 2016).
Maryland courts employ “a three-part burden-shifting scheme . . . when determining
whether an action is covered within the scope of the insurance policy.” CX Reinsurance Co. Ltd.
v. Camden Management Services, LLC, WMN-14-180, 2014 WL 5510914 at *3 (D. Md. Oct. 30,
2014). First, “the burden of proving entitlement to insurance benefits lies with the insured.”
HSK v. Provident Life & Accident Ins., 128 F. Supp. 3d 874, 882 (D. Md. 2015) (applying
Maryland Law); see Alpha Cons. and Engineering Corp. v. The Ins. Co. of the State of Pa., 402
Fed. Appx. 818 (4th Cir. 2010) (“The initial burden of proof is placed upon an insured seeking
coverage under a policy's insuring language.”) (applying Maryland law). Second, the insurance
company must demonstrate that the policy excludes coverage of the claim. Ace American Ins.
Co. v. Ascend One Corp., 570 F. Supp. 2d 789, 798 (D. Md. 2008) (applying Maryland law); see
also Trice, Geary & Myers, LLC v. Camico Mut. Ins. Co., 459 Fed. Appx. 266, 274 (4th Cir.
2011) (“The burden is on the insurer, not the insured, to prove the applicability of an exclusion.”)
(applying Maryland law); Finci v. Am. Cas. Co. of Reading, Pa., 323 Md. 358, 394, 593 A2d
1069, 1087 (1991) (observing that the insurance company had the burden of proving an
exclusion to coverage in its policy). Third, if the insurance company prevails in showing that the
claim is excluded, the insured must prove the applicability of an exception. Bao v. Liberty Mut.
Fire Ins. Co., 535 F. Supp. 2d 532, 535 (D. Md. 2008) (applying Maryland law); see also, 2
Claude L. Stuart, III and Evan T. Caffrey, Law and Practice of Ins. Coverage Litig., § 23:20
(2016) (“[I]t is generally held in most jurisdictions that while insurers have the burden of proof
on the applicability of exclusions, the insured has the burden on demonstrating that its claim falls
within an exception to an exclusion.”).
CX Re does not dispute that Arbor can carry its initial burden of showing coverage under
the Policies. ECF 43-1 at 11. The suit brought by Heggie seeks “damages for ‘bodily injury’
that allegedly took place within the ‘coverage territory’ during the policy period.” Id. This
unquestionably creates the potentiality of coverage. The burden thus shifts to the CX Re to
prove that an exclusion applies to coverage of the Tort Suit. Id. See HSK, 128 F. Supp. 3d at
882. As noted, the applicable Exclusion states, ECF 44-3 at 1: “This insurance does not apply to
. . . ‘[b]odily injury’ . . . arising out of the Ingestion, inhalation, absorption of, or exposure to,
lead, lead-paint or other lead-based products of any kind, form or nature whatsoever.”
According to CX Re, “Under the exclusion contained in the COVERAGE LIMITATION
– LEAD CONTAMINATION endorsements, the Policies ‘do not apply’ because Mr. Heggie's
bodily injuries allegedly arose out of the ingestion and consumption of ‘paint and dust containing
lead and lead pigment.’” Id. CX Re has met its burden in demonstrating that the Exclusion to
the Policies applies in the Tort Suit. The burden thus shifts to Arbor to show that an Exception
to the Exclusion applies. See Bao, 353 F. Supp. 2d at 535.
An Exception to the Exclusion provides coverage for bodily injuries arising from lead
exposure, where the bodily lead levels are diagnosed by a qualified person, during the term of
the Policies, as above 10 micrograms per deciliter of blood. ECF 44-3 at 1-2. The terms of the
Policies ran from August 1, 1997 to August 1, 1998, for Policy No. CNAGL 1106-97 (ECF 1-3
at 2), and from August 1, 1998 to August 1, 1999, for Policy No. CNAGL 1240-98. ECF 1-4 at
Thus, to fall within the Exception, “a lead level in blood, bone or body tissue in excess of
the ‘safe level’ [must have been] first diagnosed by a State licensed physician or other State
licensed health care provider during this policy period.” Id. at 2. But, Arbor has failed to meet
its burden of production; there is no showing whatsoever that Heggie was first diagnosed with a
lead level above 10 micrograms per deciliter of blood, the “safe level,” at some time during the
term of the Policies, which, when combined, ran from August 1, 1997 to August 1, 1999. See
ECF 1-3 at 2; ECF 1-4 at 2.
Notably, the Complaint in the Tort Suit (ECF 43-2) does not specify the period during
which Heggie was diagnosed as having an elevated lead level in his system. Moreover, counsel
for CX Re has represented that he is unaware of any such evidence tending to show that the
Exception could be applicable to Heggie. ECF 43-1 at 12.
In sum, there are no disputes as to the material facts in this case. The Exception to the
Exclusion in the Policies unambiguously provides that CX Re will only be required to defend
and indemnify Arbor if the plaintiff in the Tort Suit was first diagnosed with a lead level above
the “safe level” during the terms of the Policies. There is no evidence that this condition was
met. Accordingly, I shall grant the Motion for Summary Judgment.
A Declaration and an Order implementing this ruling follow.
Date: October 14, 2016
Ellen L. Hollander
United States District Judge
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